Adventures in Legal Outsourcing to India and Beyond

April 2010

April 30, 2010

"LPO" stands for "Little People of Ontario." It also stands for the Limited Principle of Omniscience, and legal process outsourcing. I'm not a big fan of "LPO" or "Legal Process Outsourcing" for generally describing the off-shoring of legal services. These terms are apparently a media invention, first appearing in 2005. They derive from "BPO," or business process outsourcing. But to the extent that the word, "process," suggests standardized, commoditized, easy-to-replicate tasks that can be performed without a lot of education, much less any professional training, it is a misnomer when applied to the entire legal services offshoring industry.

Typing a medical transcription, or answering calls based on a script, is a "process." On the other hand, legal research, legal analysis, or drafting complaints, contracts, patent applications, or legal briefs, is not a BPO-like, commoditized "process." Those are legal services, even if they do not amount to "practicing law," which can only be done by the supervising, licensed attorney (often in-house corporate counsel or a member of a Western law firm), who reviews the services that "LPO" companies provide.

Yet another potential misnomer is “outsourcing.” There is nothing new or controversial about the outsourcing of legal services. Every law firm in the U.S. and the U.K. is an outsourcing company. Their corporate clients have routinely “outsourced” legal services work to outside counsel for hundreds of years. What is relatively new is not legal outsourcing, but legal offshoring. What is new is the creation of a worldwide legal landscape, where offices and employees are located in places determined by the actual needs of clients.

But it looks like the "LPO" moniker has caught on, and is here to stay. Perhaps this is due to the predominance of process-driven assignments such as document coding. In any case, if we are stuck with "LPO," we might as well make the most of it. In that vein, below is a list of what LPO actually stands for. My personal favorite is lattice preferred orientation (LPO), which has been widely used in the important work of analyzing different aspects of mid-crustal ductile deformation. Runner-up is left posterior oblique (LPO), which is a very effective way to determine the inherent error of the left ventricular volume measurement from the gated equilibrium blood pool scintigram, when utilizing the count-based technique on a study population of patients imaged with a parallel-hole collimator.

All of these are services that are more cost-effectively provided by LPO vendors in India. Here's the full list of the LPO services and institutions that really should be off-shored to India, or to the Philippines:

April 29, 2010

Evalueserve, the global business research and analytics firm, has just released a new report on the legal process outsourcing industry in India and the Philippines. It utilizes new research and analysis of the industry's revenue and growth potential, to build upon the 2006 Evalueserve whitepaper, "Legal Process Outsourcing – Hype vs. Reality." The key findings of the updated April 2010 report are as follows (quoting from the report):

"The LPO industry is growing fast, and it is already the fastest growing sub-sector in the Knowledge Process Outsourcing (KPO) domain. Even during the Great Recession, the LPO sector grew by 40% each year. Revenue growth between 2010 and 2015 is expected to be approximately 26%. Currently, there are over 5,200 professionals in the LPO industry in India and the Philippines, contributing an annual revenue of USD 300 million, and this is expected to reach 18,000 professionals with an annual revenue of USD 960 million by December 2015."

"Almost all of the offshore outsourcing work is being sent from the U.S. and the U.K. More than 90% of the LPO work is either being directly outsourced by Corporate Counsels or on behalf of Corporate Counsels (by their preferred law firms). So far, law firms have been hesitant to offshore outsourcing."

"Due to the impact of the Great Recession, there will be pressure on law firms to reduce their overheads related to marketing and sales, general administration, Information Technology, accounting, clerical, paralegal, and knowledge management. These overhead expenses account for about 17% of the total overhead expenses (of approximately 41%) that a typical law firm with 20 or more lawyers incurs in the U.S. By moving most of this work, which is non billable, offshore, these firms can reduce this cost to approximately 7%. Currently, almost no law firm in the U.S. is considering this option."

"The implementation of Clementi proposals in the UK is expected to boost the LPO industry because law firms are likely to be more efficient. In fact, many law firms have started implementing new models for pricing, designing, and managing better legal work processes; modifying and re-using existing work products and templates; partnering with other legal service providers to provide the entire array of services; and beginning to outsource functions (offshore) that include creating marketing and sales brochures, accounting, Information Technology, clerical, paralegal, knowledge management, secondary research, and legal and library information research."

"Knowledge management (KM) will be a growth area for the LPO industry through which LPO firms can help their clients grow better and faster. In particular, LPO firms can help the in-house KM teams of law firms—especially those with dispersed offices—to consolidate and manage all the available resources into an electronic repository to save cost and increase efficiency."

Evalueserve concludes in its report that between 2010 and 2015, the number of professionals working in the legal outsourcing industry will grow from 6,400 to 18,000, and revenues will climb by 26 per cent each year, from $300 million to $960 million:

"Although it started from a very small base and had only 1,300 professionals in December 2005, research studies conducted by Evalueserve, Gartner, IDC, Outsourcing Institute, Legal Forest, ValueNotes, and others show that LPO is the fastest growing sub-sector in the Knowledge Process Outsourcing (KPO), a term introduced and analysed by Evalueserve in 2003. Research conducted by Evalueserve shows that in December 2009, about 5,200 professionals (4,900 in India and 300 in the Philippines) were providing legal outsourcing services; however, this number is expected to grow to 6,400 by December 2010 and to 18,000 by 2015.... Almost all offshore outsourcing work is being sent from the U.S. and the U.K, and this trend is likely to continue in the near future." (footnotes omitted)

"Evalueserve's analysis shows that the revenue growth between 2010 and 2015 is expected to be approximately 26%. LPO firms in India and the Philippines will generate approximately $300 million in 2010 and $960 million in 2015. Even during the economic recession of 2008 and 2009 (a.k.a. the Great Recession, a term coined by Peter Morici, an Economist and Professor at the R.H. Smith School of Business at the University of Maryland, College Park, Maryland, U.S.A.), the LPO sector grew by 40% in 2008 and in 2009; this is in stark contrast to the general KPO industry, which grew by only 5% each year during 2008 and 2009."

April 28, 2010

In an earlier post, we mentioned how a recent Eversheds report predicted a "Perfect Storm" for the legal profession, as "cost pressures force General Counsel and firms to look to low cost jurisdictions to resource work." We noted that lately there has been a "sea change" in expert opinion regarding the future of Western law firms and the impact of legal outsourcing to India. Continuing the nautical theme, legal industry analyst Jordan Furlong wrote an article for The Lawyers Weekly, entitled, "Here Comes the LPO Tsunami." Mr. Furlong, author of the
award-winning blog, "Law21: Dispatches from a Legal Profession on the
Brink," says that legal services off-shoring is "a game-changer of the highest order":

"If you were to ask me what single new development in the legal services marketplace will generate the most upheaval for lawyers and law firms in the near future, I’d have to go with legal process outsourcing (LPO). It’s a game-changer of the highest order, in ways many lawyers don’t yet realize.Legal process outsourcing is often simply and wrongly described as "sending legal work to India." In reality, LPO is our market’s version of business process outsourcing (BPO), the enterprise theory that revolutionized the corporate world decades ago by applying workflow and supply chain principles to the tasks that businesses undertake every day, with the goal of improving efficiency, enhancing quality, and lowering costs.BPO can and does involve relocating some tasks to lower-cost jurisdictions — sometimes within national borders but often outside them, wherever competent performers can be found. That’s one way in which lawyers will be affected by LPO: our colleagues in India, for example, will do the work of entry-level associates for dimes on the dollar."

Evidence of the Perfect Tsunami Sea Change is mounting. In addition to the much-discussed Rio Tinto deal with CPA Global, there is also the recent news that Microsoft has shifted legal work to Indian teams at both CPA Global and Integreon. Also, there is probably a reason why sophisticated investors at Intermediate
Capital Group are paying $670 millon for only a minority stake in CPA Global, effectively valuing that particular legal outsourcing company at $1.4 billion. Meanwhile, one of the other legal
outsourcing leaders, Mumbai-based Pangea3, has doubled in size in the last year, expanding its
operations to New Delhi as well. As Jordan Furlong notes in his article, which is addressed to Western lawyers: "If you’ve neglected or minimized the impact of LPO on your practice up until now, look again. You might well be looking at the future of law firms."

April 24, 2010

When SmithDehn LLP and the Indian legal outsourcing team at SDD Global Solutions were working on Sacha Baron Cohen's "Bruno" film, one of the assignments was to prepare a survey of the applicable laws of nearly 10 countries where filming would take place. It was not a big surprise that in much of the Middle East (including Israel), you can be sued, and sometimes even prosecuted, for "dishonoring" someone. But even in liberal Europe, a film company (or anyone) can land in hot legal water just for "insulting" a member of the public. And if you cause offense to some so-called Muslims (apparently there is nothing in the Koran supporting what they are doing), you could be killed. Compared to the United States, where "Ali G," "Borat" and "Bruno" claimants have filed 15 lawsuits (none of them successful), foreign countries seem even much more dangerous for controversial filmmakers. After all, in the U.S., we have free speech, right?

Well, not exactly. The creators of the notorious and popular "South Park" television series found out that although making offensive jokes at the expense of blacks, Jews, gays, Buddhists, Scientologists, the disabled and just about anyone else is fair game, you absolutely cannot get away with portraying the prophet Mohammed in a bear costume.

When South Park creators Trey Parker and Matt Stone dared to do this (believing that the bear costume would save them from the "rule" that you cannot visually depict the prophet), TV
network Comedy Central swiftly censored the show, deleting all references to Mohamed. Was this because of some kind of new anti-blasphemy law? No, the censor's axe came crashing down because someone who adopted the name of "Abu Talhah al Tamrikee," on an obscure website, RevolutionMuslim.com, posted a "warning." The post was accompanied by a photo of the dead body of Dutch filmmaker Theo Van Gogh, who was murdered by so-called "Islamic" extremists for producing a documentary exposing violence against Muslim women. The warning read as follows:

"We have to warn Matt and Trey that what they are doing is stupid, and they will probably end up like Theo Van Gogh.... This is not a threat, but a warning of the reality of what will likely happen to them."

The website also included an audio sermon discussing the assassination of those who insult the prophet Mohammed, and a link to a story containing details of Parker and Stone's Colorado mansion. On Twitter, Mr. "al Tamrikee" tweeted as follows: "May Allah kill Matt Stone and Trey Parker and burn them in hell for all eternity."

Pakistan, Yemen, and some other Muslim-majority countries have made efforts in the United Nations to have anti-blasphemy laws applied worldwide, to prohibit "defamation of religion." But who needs laws against blasphemy, when internet death threats are more effective, and easier to issue?

When I was a much younger lawyer, one of my assignments (for my previous law firm's client, book publisher Penguin) was to try to persuade the FBI and the New York City Police Department to provide protection for the publisher and retail sellers of the novel, Satanic Verses, by Salman Rushdie. I tried explaining that Iran's Supreme Leader, Ayatollah Ruhollah Khomeini, had issued a fatwa (a death sentence to be carried out by any and all believers) against anyone associated with this book, which the Ayatollah perceived as an insult to Islam. "Fatwa? What's a fatwa?" That was the reaction I got, until translators, editors, and others started getting killed.

Death threats are taken seriously now. But instead of focusing on stepped up security and requests for law enforcement, some companies like Comedy Central are all too willing to cave in. So much for free speech. It effectively does not exist, if the media outlet that distributes your speech decides that the sword, or the threat of it, should be mightier than the pen. As UCLA law professor Eugene Volokh puts it, "the consequence of this position is that the thugs win, and people have more incentive to be thugs." As the Los Angeles Times reports, Professor Volokh "sympathizes with the predicament faced by Comedy Central, [but believes] the network has potentially empowered other extremists, by how it has chosen to handle the situation." In the words of South Park co-creator Matt Stone, network self-censorship has become "the new normal."

New York Times columnist Ross Douthat commented on the irony of the fact that there are virtually no sacred cows left in American society, with nearly every cultural icon subject to demolition, while at the same time, many media outlets cower in fear when threatened with pseudo-Islamic extremists:

"This is what decadence looks like: a frantic coarseness that 'bravely' trashes its own values and traditions, and then knuckles under
swiftly to totalitarianism and brute force.... [I]f
a violent fringe is capable of inspiring so much
cowardice and self-censorship, it suggests that there’s enough rot in
our institutions that a stronger foe might be able to bring them
crashing down."

To Comedy Central's credit, it did not censor Jon Stewart's sharp (and very funny) critique of the whole affair on The Daily Show, including strong words against the "Muslim" threat-mongers, who presumably will threaten him now. (They already have called for the death of "all Jews.") As he pointed out, it is ironic that the New York-based extortionists at "Revolution Muslim" are able to use their own rights of free speech to suppress those of others.

It is sad when people feel a need to make fun of other people's religions, or to otherwise press their buttons. It is worse when the reaction to that is a threat of murder. But worst of all, is when death threats work.

April 07, 2010

The news of the last couple of weeks has reflected what may be a sea change in expert opinion regarding the future of Western law firms. Providing the focus of much of the discussion was a recent conference at the Georgetown University Law Center, titled "Law Firm Evolution: Brave New World, or Business as Usual?" (Twitter: #GtownLFE). For example, an online article from American Lawyer about the conference featured the headline, "The Change Agenda: Is Mega Law a Dead Man Walking?" And what was the reporter's summary of the message delivered by the general counsels, academic experts, and law firm partners who participated in that debate? The traditional large law firm model is "dead, dying, and changing."

Georgetown Law Professor Milton C. Regan, Jr., the Co-Director of the conference sponsor, The Center for the Study of the Legal Profession, both began and concluded his written presentation with the topic of legal outsourcing to India. He noted, among other things, that mining giant Rio Tinto's decision last year to outsource legal work to India shows how law firms are facing "increasing pressure to disaggregate their services and engage in at least some outsourcing to compete effectively in the legal services market...."

Although the conference by no means was devoted exclusively, or even mainly, to the topic of legal process outsourcing (often referred to as "LPO"), observations on that subject were confirmed by events in the real world. British Telecom recently reported it is sending commercial contracting and anti-trust regulatory work to the India offices of outsourcing provider UnitedLex. Microsoft has joined Rio Tinto in announcing the transfer of legal work to CPA Global, also in India. Here at the India offices of SDD Global Solutions, one of the world's largest insurance companies has kept two teams of our Indian lawyers busy for the last two months, researching and drafting dispositive motions for litigations in multiple U.S. cities. Last year, SDD Global made world headlines by handling the legal research and drafting for the precedent-setting dismissal of a high-profile Los Angeles libel suit, Doe v. HBO. (This led to defendant and Hollywood star Sacha Baron Cohen issuing his first commercial endorsement, saying publicly that "SDD Global Solutions will go down in history as a group of revolutionary lawyers.")

Richard Susskind, Columnist for The Times of London, IT Advisor to the Lord Chief Justice of England, and author of the influential books, "The Future of Law" and "The End of Lawyers? Rethinking the Nature of Legal Services," reports that developments like the Rio Tinto deal and others could signal "further good news for the legal process outsourcing industry, whose combined turnover in India is already more than $400 million, and whose credibility was recently enhanced by Rio Tinto’s statement that, in its first six months of outsourcing legal work to CPA Global, it had saved $14 million."

Shortly before the conference, the international mega firm, Eversheds, released an eye-opening study, entitled, “Law firm of the 21st century -- The Clients’ Revolution: a Report on the Post-Recession Legal Sector in 2010.” The authors of the report refer to the situation now faced by large law firms as a "perfect storm." The study involves a survey of 130 general counsels and 80 law firm partners. On the subject of sending work to legal outsourcing companies, the survey shows that the percentage of general counsels either already doing this or interested in it has increased to 66%, up from 49% in the same survey only two years ago. Here are some highlights from the 2010 Eversheds report:

"This report shows that the legal landscape has changed permanently and more quickly than anyone imagined when we produced our original 21st century law firm report in 2008. Even before the credit crunch, it was clear that business people were disillusioned with ever increasing fees, wasteful practices and an unwillingness to change. Harsh economic times have pointedly polarised these issues."

* * *

"The research identified four major factors which are driving change. In order of importance, they are:

• globalisation – the move to the East

• increasing professionalism and status of the General Counsel

• technology

• the Legal Services Act in the UK.

The conﬂuence of these four factors, stimulated by the recession, has created a perfect storm in the legal market. The storm and its aftermath are investigated in this report."

* * *

"THE PERFECT STORM

The recession has accelerated the globalisation of the legal profession. Whilst cost pressures force General Counsel and firms to look to low cost jurisdictions to resource work, the inexorable shift of the economic fulcrum to the East means that many international law firm leaders are now starting to envisage moving their HQs from the West to China or India. The developing markets in the Middle East, Asia and Latin America are also attractive pools for new work."

* * *

"The aftermath of the perfect storm:

This could be described as a revolution where the stakeholders in the legal market have finally become appropriately aligned. The client has in effect moved to the centre of the legal services solar system, whilst the premium law firms have been relegated to an orbiting position."

* * *

"76% of legal clients and 75% of partners say that the current balance of power in the client-lawyer relationship is now with clients. A majority of both groups believe the shift to a client-led market will be permanent."

* * *

"The greatest change over the past two years has been among clients whose appetite to outsource and use technology has increased. Just over a third (38%) of General Counsel were actively implementing or considering outsourcing low-level work to low-cost jurisdictions and a further 29% were receptive to the idea of outsourcing provided they had suitable work."

* * *

"For Western law firms, the shift to the East is well underway both as a move to follow a global economic trend but also as the drive to efficiency dictates that low-cost jurisdictions are a key component of cost base reductions. Has there been a paradigm shift since Eversheds released its 21st century law firm report in 2008? Yes. The client prediction that the model was unsustainable has come to pass. Few law firm leaders now believe that old models will survive. Some may occupy the role of trusted adviser, but even this has been assumed by General Counsel who, whilst wanting collaboration, will put value for money first. And with the power resting with General Counsel for some time to come, what they want (and need) will dictate how the market develops."

* * *

"The change that was predicted to take place over the next 10 years is here now, and it will be those firms who respond to the trends identified in the report who will see the real benefits.Richard Given, Legal Director, Emerging Markets, at Cisco, adds: “Law firms need to make sure they listen to their customers, understand their needs and recognise that change will happen. Firms cannot go on believing that the hourly rate is still an acceptable way of billing; the market is at a tipping point, and it is those who can address the change that will be the ‘next generation’.”

For a full copy of the report, click here. Eversheds is not just talking the talk. By being the first major UK law firm to set up its own offshore legal process outsourcing company, it is walking the walk. The venture, announced only three months ago, is in South Africa, and apparently it is still in the pilot stage. In the U.S., at this point, the only law firm running an offshore legal outsourcing company is New York-based SmithDehn LLP, which manages SDD Global Solutions in India.

A couple of weeks ago, yet another groundbreaking report was released, this one more U.S.-oriented. It's title is "The Future of the Legal Professsion: A Conversation with the Legal Community's Thought Leaders on the Front Lines of an Industry in Transition." The conclusions dovetail with the Eversheds report. This second survey was conducted by Ari Kaplan, a veteran "big law" attorney and best-selling technology and marketing author, who was the keynote speaker at last month's American Bar Association Techshow. Kaplan interviewed 30 experts, including practicing lawyers, academics, in-house counsel and CEOs, and he found that 74 per cent of them agreed that the legal services industry is in the process of profound and permanent change. Part of that change is the rise of legal process outsourcing. Below are some highlights from Kaplan's report:

"85% of the respondents had heard of instances where a corporate client would not pay for first year work on their projects. Part of the reason for that accord is the acceptance that outsourcing is a positive trend and helps to create value. 'You will see a lot more firms and companies using outsourcing companies to do work more efficiently,' predicted [David Van Zandt, Dean of Northwestern University School of Law]. 'Having a big firm associate do it is less efficient than having an organized outsourcing firm do it,' he added."

* * *

"Whether they have benefited the legal profession or not, 74% of the participants agreed that the changes will be permanent. Actually, 'it is quite likely that we will look back on this period as one of less dramatic change than the period that is coming,' said [David B. Wilkins, Harvard Law School Professor and Director of the Program on the Legal Profession]."

* * *

"With respect to the transformation of the industry, [Larry Bortstein, Former Global Head of Technology Law at Lehman Brothers] said, 'it is more expensive to tear down the Empire State Building and build a new one than to just build a new one.' Given the difficulty of large established institutions to reorganize quickly, he predicts the growth of alternative providers and the rise of legal process outsourcing."

At the GtownLFE conference, many of the speakers had deep practical experience and strong opinions on these issues. For example, Susan Hackett, Association of Corporate Counsel ("ACC") vice president and general counsel, warned that traditional law firms probably have only 12 to 18 months before they lose their clients to legal service companies and other non-traditional alternatives: “The window is open for another year to year and a half for firms before clients start walking and looking at firms they've never looked at before.” Hackett went on to point out that “the legal industry has become used to using time as the only way of measuring value, so we base fees and budgets on that, rather than on the importance of that work to our business.” She correctly noted what is now obvious and intolerable to most general counsels today, namely, that "law firms can rack up huge bills for cases that the company ultimately loses, engage in all sorts of work that perhaps isn’t necessary for the case, or assign it to a more senior person than is required, and the company is faced with a bill that has no relationship to the outcome of the work.”

Another GtownLFE presenter, Leah Cooper, formerly Managing Attorney at Rio Tinto, and now Director of Strategy at outsourcing company CPA Global, suggested that part of the solution is the availability of low-cost staffing options, and for inside and outside counsel to have conversations and an understanding at the outset of legal assignments, to set metrics and goals regarding fees. As Cooper said, the pursuit of value "must also allow employment of a low-cost staffing option. Legal departments just aren’t having the appropriate conversations before work starts. The project isn’t defined; it just starts and later a bill arrives, so there are no expectations to meet or be measured against.” In making the plunge to join a legal outsourcing company herself, Cooper offered the following public statement:

"Outsourcing is changing the legal landscape, and CPA Global is at the forefront of that change. Over the past year, I’ve worked closely with CPA Global to develop a new legal model [for Rio Tinto] that has delivered high quality, cost effective legal services. Joining the CPA Global senior management team is an incredible opportunity to continue to revolutionize the increasingly competitive legal services market."

Larry Ribstein, a University of Illinois law school professor, who also spoke at the conference, offered a particularly bleak assessment for "Big Law":

"My hypothesis is that for the big law firm we'll see a downhill slide that the horse drawn carriage experienced.... [W]hat can firms do? Nothing. They're dead."

In his presentation on "The Death of Big Law," Ribstein discussed legal process outsourcing to India in particular:

"Big Law’s clients themselves theoretically could hire cheaper foreign lawyers and avoid the middleman of a U.S. law firm. This practice is currently limited by the fact that outsourced lawyers are not licensed in the U.S. to represent U.S. clients. Big Law avoids this problem through a rule that enables lawyers to outsource as long as they exercise reasonable supervision over the supplier. However, corporate clients could exercise comparable supervision through in-house counsel, which already hire outsourcers to assist them in their own work. This could effectively expand the capacity of in-house counsel offices and reduce the amount of work clients need to send to outside lawyers."

In another large (54-page) presentation made to the conference, by Milton C. Regan, Jr., Georgetown Law Professor and Co-Director of the Center for the Study of the Legal Profession, the discussion opens with legal services outsourcing to India and specifically references the future outsourcing of "more sophisticated and strategic work":

"An announcement on June 18, 2009 by global mining company Rio Tinto sent a powerful message to law firms that the world is changing. The company declared that it had entered into an agreement with legal process outsourcing (LPO) company CPA Global to perform legal work on a scale that would reduce Rio Tinto’s annual legal expenses by an estimated twenty percent, or tens of millions of dollars. This work currently was being done by lawyers in the company’s legal department. Traditionally, if a company’s inside lawyers did not handle legal work, the company engaged an outside law firm to do much of it. Rio Tinto’s managing attorney Leah Cooper, however, explained that the company no longer wanted to pursue that option: 'For a long time,' she said, 'we’ve been asking law firms to provide us with ways to better control and predict our costs, but at best they offered a discount or a cap in fees.... In the end, we decided to take the initiative ourselves.’ A team of CPA lawyers in India will be dedicated to working for Rio Tinto, and Cooper has said that she wants them to function as does any other Rio Tinto office. At the time of the announcement, CPA had already completed forty projects for the company, including contract review, legal research and analysis, merger and acquisition due diligence work, and draft joint venture agreements, as well as gathering fifty lawyers within forty-eight hours in Washington, D.C. to handle an electronic discovery request from the Federal Trade Commission. The majority of the work that the LPO will be performing is relatively routine, but Rio Tinto stresses that most of it 'is not volume-based; it’s day-to-day work that requires constant communication.' Furthermore, the mining company wants CPA lawyers to take on more sophisticated and strategic work."

Below is the beginning and end of Regan's conclusion:

"The Rio Tinto contract with CPA Global suggests that law firms are likely to face increasing pressure to disaggregate their services and engage in at least some outsourcing to compete effectively in the legal services market.... The economic downturn therefore could mark a moment of transition for law firms less because of its immediate financial impact and more because it has highlighted and accelerated the trend toward the disaggregation of legal services that had begun before it. This trend reflects the maturation of the legal services sector into a highly competitive industry driven more forcefully than ever by pressures for efficiency. How law firms, clients, and organizations connected with this industry respond could shape not only the future of law firms, but of the legal profession itself."

In our opinion, the most interesting commentary on the conference came from the consistently insightful Jordan Furlong, a prominent legal industry consultant and author of the award-winning blog, "Law21: Dispatches from a Legal Profession on the Brink." For one thing, we agree with his point that one of the most telling aspects of legal services outsourcing is the fact that sophisticated investors are betting on it, and in a very big way. If you "follow the money," you'll learn that some presumably very smart people are investing 440 million pounds to buy a 37% stake in CPA Global. That speaks volumes. Below are a couple of cogent excerpts from Furlong's comprehensive post, "The Blind Side":

"[F]or me, the penny dropped during the dinnertime address by Richard Susskind, whose remarks included a heartfelt plea for conference delegates to lead a change for the better that the profession and justice system desperately need. One of Richard’s topics was the Legal Services Act in England & Wales, and its soon-to-be-active provisions allowing alternative business structures (ABSs), including non-lawyer equity investment in law firms and legal enterprises. Richard, however, has been speaking with investors who are actively engaged in preparing entry to this marketplace, and he reported that law firms are not their primary target; in fact, their interest is coalescing around legal service providers that we now consider to be on the fringes of the profession, like legal processing outsourcing companies."

* * *

"Already, Intermediate Capital Group has made a £440 million investment in CPA Global, the LPO firm that famously took a huge chunk of legal work from Rio Tinto last year. That purchase effectively placed a marketplace value on CPA Global approaching $1.4 billion. How many law firms, if they were to go public today, could aspire to a $1.4 billion market cap?"

We also agree with Furlong's assessment that legal process outsourcing is moving toward higher value work, even if the vast majority of the current assignments are low-level, especially involving document coding:

"LPOs, it has to be emphasized, are not just doing first-year associates’ grunt work, not anymore. They are moving up the value chain steadily and with surprising speed, taking on the work of second-, third- and fourth-year lawyers -- not just by using lower-cost labor, but by doing the work more systematically and efficiently. As I said a while back, these companies will not be content with basic work forever; they see no reason why they can’t eventually do the toughest legal jobs. Billion-dollar legal services providers, unfettered by traditional lawyer restrictions, can go global instantly and almost effortlessly. They’ll have more than enough money to acquire the top talent from the best firms worldwide, to invest in new systems and innovations that will reduce costs even more, and most importantly, to change clients’ expectations about what a law firm can deliver. They will be law firms, in effect, and even if lawyers in a given jurisdiction somehow succeed in keeping them out, the landscape will have changed: clients will demand their lawyers compete on the same playing field."

* * *

"The prospect that emerges from all this is a legal services marketplace in which many law firms are simply irrelevant — they’re not structured in ways that deliver maximum value to clients and they can’t compete with rivals that are. There was a lot of talk at the Georgetown event about whether 'BigLaw is dead,' and I have to agree with those managing partners who dismissed the notion: these firms are obviously up and about and making a great deal of money, and it’s absurd to pretend they’re dead men walking. The worry, for me, is that many firms, of all sizes, aren’t ready for the radical ways in which the playing field is about to change. Their focus is either straight ahead, on their clients, or internal, on their own condition and competitiveness. They’re like a quarterback whose gaze is either locked downfield on his receivers or focused dead ahead on the defenders in his path. As a result, he never sees the hit coming, from his blind side, that flattens him and turns the ball over to the other team. It’s not just lawyers and clients who matter anymore. New players, with an unprecedented combination of size and speed, are charging onto the playing field like a storm and rewriting the rules of the game as they come."

The move of legal outsourcing up the value chain from low-end work like document-coding to higher-value assignments, such as legal research and drafting, is inevitable. For economic and other reasons discussed below, it seems that sophisticated investors would not value CPA Global at $1.4 billion solely on the basis of its prowess in document review. But, as also discussed below, there is no reason why the move into higher value work necessarily must be in competition with, or detrimental to, Western law firms. At SDD Global, we deliberately have chosen to focus almost exclusively upon higher value work, even though we have been nearly alone in an industry dominated by document review.

For starters, and for the same reasons Western lawyers loathe it, no one at our company is interested in document coding. Below is a colorful description of what is left of very gray document review for large law firms in the U.S., from a leading blogger and experienced Western document coder:

"Packed elbow to elbow in stifling broom closets and windowless backrooms, these “losers” (many of whom are laid-off graduates of so-called 'elite' schools) stare into the alkaline glow of their monitors and click thru reams of the dullest, driest, most pointless shitpaper mankind has ever produced. Many arrive home at night with their eyes weeping blood. The fun quickly wears off after the twelfth hour of scanning a Global Broker-Dealer Bilateral Sub-Agreement to see if Paragraph 14(b)9vii contains the word 'if' as opposed to 'shall.' Picking fly shit out of black pepper would be a more intellectually stimulating (and probably better paying) job."

* * *

"Ah, how I tire. Age. Do we die all at once, or a little each day? The clock creeps all too slowly on these temp projects, though. Crawls. It’s sometimes as if time itself were submerged underwater, with minutes dragging on for days as if mired in quicksand. After all, we’re doomed to tedious and mindless make-work akin to Sisyphus of yore rolling his boulder up the perpetual hill. The terminally ill, I’ve often argued, could easily add 'phantom' years to their doomed lives just by showing up on a document review gig, where an hour of 'coding time' equals approximately four decades in the 'outside world.' A three-week project would to them equal a virtual second life."

Second, we've done the math. A low barrier to entry has led to well over 200 document review companies in India alone, and the resulting price competition is fierce. In India, there are many hundreds of thousands of lawyers and non-lawyers, who, after two weeks of training, are able and willing to do this kind of work for as little as a couple of hundred dollars a month. This actually is more than the average low-paid Indian lawyer in non-outsourcing practice is paid. And it is many times what the average Indian is paid. India's "demographic dividend," coming from the fact that the country has, and will continue to have, one of the youngest populations on earth, means that (a) back office work in India will continue to explode, and (b) the price competition among document review providers will continue to reduce profit margins.

On top of that, the economies of scale and technological advances created by top-notch document review companies, such as CPA Global, UnitedLex, Clutch Group, Integreon, and Pangea3, mean that only the very largest of providers, such as those five, will be able to make a substantial profit from document coding, thanks to the sheer volume of their operations. Speaking of high volume, the recent 440-million-pound funding of CPA Global indicates that in some ways, leading legal process outsourcing companies will come to resemble BPO and IT companies, rather than law firms. Indian IT provider Infosys has over 75,000 employees, and it seems that CPA Global, which already has 1,300 personnel on its payroll, and which now has the investment to hire many more and engage in expanded marketing, is on that path.

But back on the subject of the move to high-value work, we agree with Jonathan Furlong that even the largest document companies will not be content with the provision of only low-value services. Why should they chase after a dollar or two (or less) in profit margins from billings that effectively range from $3 to $10 per hour, when Indian talent and efficiency is able, with training, to generate top-tier legal research and drafting services at effective rates of $35 to $100 per hour? (We use the word, "effective," because hourly billing is rapidly becoming a dinosaur, not only in the West, but also in India.)

Will the provision of those higher value services in India threaten the very core of law firm profitability in the West? Our experience suggests the answer is no. Our own company's offshored legal services from India actually create more legal work in the West, rather than cutting it. Every time a deal is done, or a litigation is waged, because legal services are suddenly affordable, it means more work for the U.S. and U.K. lawyers involved in supervision, editing, and/or appearing in court.

This is not unique to SDD Global. For example, after mega firm Eversheds signed an outsourcing deal with an Indian legal service provider, which in turn is handling the drafting of commercial contracts for deals that normally would be too expensive, legal-wise, to pursue, the Eversheds spokesman pointedly noted, referring to the outsourcing of these matters to India, that “[i]t’s not taking work away from anyone. It’s actually creating work out of contracts that would –otherwise sit in a metaphorical drawer.” And it is work that will be supervised by Western lawyers, adding to their revenue.

At SDD Global, we've seen this creation-of-work phenomenon first-hand. A Fortune 100 client of our managing law firm, SmithDehn LLP, specifically requested that the legal research and analysis needed for a series of multi-million-dollar deals in the U.S. be done by Indian attorneys at SDD Global. This is yet another situation where, if not for a Western law firm’s outsourcing capabilities, no lawyers would have been hired, because typical Western legal fees would have made it prohibitive. The work would have been done either in-house, or not at all. Because the India team made it possible for the deals to happen, Western law firms ultimately got more business, handling the otherwise non-existent transactions.

A similar thing has happened in litigation, where corporate clients have chosen to defend themselves against meritless lawsuits, using both U.S. and Indian lawyers. Without legal outsourcing, there would be no lawyers hired for any significant work at all, because the cases simply would have been settled at the outset, just to avoid the usual U.S. litigation costs. Indeed, when it comes to litigation, offshoring of legal work is leading to an unprecedented new breed of benign tort reform, as defendants facing bogus or inflated tort claims could choose to litigate instead of settle. This in turn would discourage frivolous lawsuits. Yet legitimate plaintiffs would suffer no averse effects. Then, as now, no sensible corporate defendant would reject the chance to settle a meritorious claim at a reasonable price. That’s because outsourcing reduces the costs of litigation, but doesn’t give defendants the tools to win cases when the plaintiffs are right. To the contrary, legal outsourcing can be used by lawyers for legitimate plaintiffs to pursue cases that have merit, without worrying as much about the cost, or about a scarcity of resources to support the litigation. But all the money that otherwise would be spent by defendants on nuisance payouts could be plowed by corporations right back into the economy. And yes, some of that money will flow through the pockets of those Western lawyers who are smart enough to use legal outsourcing to get work that otherwise would not exist.

A perfect example is the U.S. litigation work SDD Global has been performing for multi-billion-dollar media giant Channel Four Television Corporation, the UK's second largest commercial television network, which incidentally developed and produced countless award-winning films such as Slumdog Millionaire, The Crying Game, Trainspotting, The Last King of Scotland, and Four Weddings and a Funeral. Channel 4 was happy not only with the dismissal we helped two sets of U.S. lawyers obtain in a high-profile law suit, but also with the low legal fees that made the defense possible.

As noted by the client in an unusual press release it issued following the victory: “This action was fought with the litigation support services of SDD Global Solutions, the India arm of Channel 4’s U.S. counsel, SmithDehn LLP, in a groundbreaking case where ‘outsourcing’ has proved to be a creative solution to running a robust defense.” U.S. law-trained Indian attorneys at SDD Global conducted the legal research and drafted all of the preliminary drafts of court papers in the litigation, including Channel 4’s motion and brief for summary judgment, which allowed Channel 4 to fight and defeat the lawsuit, rather than settling in order to avoid burdensome legal fees. The unanimous California Appeals Court decision "protecting "the free speech rights of all comedy performers and humorists," is available here.

As Channel 4’s general counsel noted in the company's press release: “U.S. court actions are extremely costly to run and even where a defendant wins, little if any of their costs are recoverable from the plaintiff. As so often happens in cases like this, the ‘chilling effect’ of the threat of substantial damages and significant legal costs, forces defendants to settle with plaintiffs who have no justifiable claim. However, combining the skills and expertise of U.S. attorneys with U.S. law-trained Indian attorneys has proved to be an innovative and cost-effective way for Channel 4 to fight and win the suit.”

If anyone still doubts the capabilities of highly-trained Indian lawyers, or believes Indians are inferior to lawyers licensed in the U.S. or the U.K., guess again. For example, the Indian lawyers at SDD Global are so well-trained that a major Hollywood film and television studio retained them to oversee and correct the work of partners and associates at an AmLaw 100 law firm. This work included not only proof-reading and correction of English grammatical mistakes (!), but also strategic suggestions. This is not because the American lawyers were in any way incompetent, but because they were too busy, and they welcomed a second set of eyes to review their first drafts. And the client preferred to pay Indian attorneys to do this, rather than American lawyers living and working in one of the highest-cost jurisdictions on earth.

In short, and for all the reasons discussed above, law firms like Eversheds and SmithDehn LLP, who embrace legal outsourcing and use it to make their services cost-effective, can ride out the "perfect storm," keep and attract more clients, and emerge more profitable as a result.

Back in October 2007, we wrote a cover article for the LexisNexis legal magazine in India. The article was titled "BEYOND THE BACK OFFICE: How Legal Outsourcing Companies in India Are Moving Up the Value Chain." In it, we made a lot of predictions. Not all of them have come true. But here are a few that now seem to be not so unrealistic:

"We are witnessing the start of a positive, paradigm shift in the way that legal services will be delivered in the West."

"Corporations, not Western law firms, will drive the market in the years ahead. Law firms will hire offshore providers, but this will be driven mainly by the dictates of corporate clients."

"Another way that corporations will drive the market, indirectly, is by obtaining flat (or fixed) rate billing from their outside counsel, instead of hourly billing. This kind of billing can radically alter the dynamics of Western law practice, as law firms working for flat rates will have a compelling incentive to reduce hours and costs, instead of increasing them as before. Flat rate billing will cause many law firms to realize that offshore providers can be important allies in improving their bottom line, rather than competitive enemies."

"Every sector of the legal offshoring industry will grow dramatically, including lower end services, such as document coding and legal transcription. Ultimately, however, the biggest impact, the long-term mother lode, will be higher-value services such as legal research and drafting – services that constitute the bulk of the legal work now done in the West."

It would be nice to end on such a positive note. But instead, perhaps we should conclude with the "tough love" advice given to other large law firms by Orrick partner Patricia Gillette at the GtownLFE conference: “Change must be sweeping. If you do not change, you will die.”

With a unanimous, landmark victory yesterday from a three-judge panel of the California Court of Appeal in Los Angeles, protecting "the free speech rights of all comedy performers and humorists," Channel Four Television Corporation and its U.S. counsel, SmithDehn LLP, utilizing the services of Indian legal outsourcing company SDD Global Solutions, have fully defeated a libel case involving a plaintiff who sought $800,000 dollars in damages, all allegedly due to the inclusion of her name in a comedy routine. (Channel 4 is the UK's second largest commercial television broadcaster, and it also is a major film producer, responsible for such award-winning motion pictures as "Slumdog Millionaire," "The Last King of Scotland," "Trainspotting," "The Crying Game," and "Four Weddings and a Funeral.")

The plaintiff in this case, who sued as “Jane Doe,” claimed that Sacha Baron Cohen used her name in a comedy “interview” by “Ali G” with the noted historian, Gore Vidal. In the interview, “Ali G” asked Mr. Vidal why there is any point in amending the U.S. Constitution, since he (Ali G) had a girlfriend (the plaintiff) who was constantly “amending herself” but to no avail.

The California Court of Appeal, in a pro-media decisionthat is the first appellate ruling of its kind in the U.S., affirmed the Los Angeles Superior Court's dismissal of the lawsuit, ruling in part as follows:

"The Ali G character made the statements during a comedy show in the context of an interview with Vidal involving a series of other comedic and sometimes crude statements that could not be reasonably understood as asserting actual facts. Ali G’s unremittingly facetious statements included comments about Vidal’s being a world famous hairstylist; Denzel Washington’s living in George Washington’s former Mount Vernon home; John Paul Jones being a quadriplegic; the world running out of gravity, which was discovered by Sir Isaac Newton-John; euthanasia meaning the killing of elderly people by youth in Asia; and Ali G’s face being added to Mount Rushmore. Taken in context, a reasonable viewer would have no basis for distinguishing these satirical and imaginative statements from statements purporting to detail Ali G’s prior relationship with a 'minger'.... 'To hold otherwise would run afoul of the First Amendment and chill the free speech rights of all comedy performers and humorists, to the genuine detriment of our society.'"

Channel 4’s Controller of Legal and Compliance, Prash Naik, commented as follows: "Channel 4 welcomes the appeals court decision, which upholds the summary judgment we secured last year and vindicates our two-year fight to defeat this unmeritorious claim."The legal work in defeating the lawsuit and winning the appeal was conducted for the most part by SDD Global Solutions, the India arm of Channel 4’s U.S. counsel, SmithDehn LLP, in a groundbreaking case where “outsourcing” has proved to be a creative solution in defending against baseless litigation.

Channel 4's general counsel added: “U.S. court actions are extremely costly to run and even where a defendant wins, little if any of their costs are recoverable from the plaintiff. As so often happens in cases like this, the ‘chilling effect’ of the threat of substantial damages and significant legal costs, forces defendants to settle with plaintiffs who have no justifiable claim. However, combining the skills and expertise of US attorneys with US-law-trained Indian attorneys has proved to be an innovative and cost-effective way for Channel 4 to fight and win the suit.”

Sanjay Bhatia, SDD Global’s Head of Operations, commented that “this is a case where outsourcing created more work in the US, rather than less. Because our team made the defense affordable, US lawyers were able to do the things in the US that they do best there, such as strategizing, supervising, editing, and appearing in court. The implications of this case are huge. With legal outsourcing, baseless lawsuits can be defeated on their merits, instead of settled simply out of fear of legal fees.”

The "Ali G" decision is the third in a recent string of court victories in favor of Sacha Baron Cohen. Last November, in a unanimous opinion, the U.S. Court of Appeals for the Second Circuit (in New York) upheld the dismissal of three "Borat" lawsuits, ruling that the consents signed by the plaintiffs who appeared in the film were valid and enforceable. This decision is available at http://thresq.hollywoodreporter.co/borat/ Last December, the Los Angeles Superior Court dismissed the first "Bruno" lawsuit, filed by a Bingo game operator who falsely claimed that she was assaulted by Cohen and his camera crew. That decision is available at http://www.4shared.com/file/164323324/28420f25/bruno_olson_decision.html